I am a convicted felon, former CPA, and former criminal CFO of Crazy Eddie. Today, I teach law enforcement agencies, professionals, and businesses how to identify fraud and train them to catch the crooks. Red flags investigated in this blog are often reported to appropriate government agencies as a whistleblower. --- Sam Antar

Monday, August 20, 2012

ZAGG CEO Sold Stock Three Days before His Resignation

Updated at 8:26 AM ET

On Friday, August 17, 2012, ZAGG Inc. (NASDAQ: ZAGG) surprised investors and announced that its co-founder Robert G. Pedersen II resigned from his posts as CEO and Chairman of the company. The press release did not mention any reason for his resignation. The announcement was made after the stock market closed.

However, on that very same day after the market closed Robert Pedersen filed a Form 4 with the Securities and Exchange Commission. It disclosed that he sold 515,000 shares at an average price of $8.2214 per share on August 14, just three days before ZAGG announced that he resigned from the company. Pedersen sold 512,240 of those shares to "to meet margin calls" and 2,760 shares were sold separately. He collected $4.234 million in gross proceeds from his sales of stock and it appears that most of that amount was used to satisfy margin calls.

Back on December 21, 2011, Pedersen sold 345,200 shares at an average price of $7.5248 per share and received proceeds totaling $2.598 million "to meet an immediate financial obligation." No mention was made of any stock pledges at that time. I'd love to know the reason behind that "immediate financial obligation."

A proxy report filed by ZAGG on April 27, 2012 does not mention any pledges of stock by Pedersen. Public companies must disclose stock pledges by insiders in proxy reports.

It would be interesting to know exactly when Pedersen pledged (margined) his shares as collateral for his margin loan and if the timing of his sale of stock had anything to do with his resignation. Furthermore, did Pedersen know that he was going to resign when he sold his shares on August 14?

Written by,

Sam E. Antar

Update

This morning, after this blog post was originally published, ZAGG filed an 8-K report with the Securities and Exchange Commission disclosing it adopted a new policy prohibiting certain insiders from engaging in certain transactions including pledging their shares:

On August 16, 2012, the Board of Directors of the Registrant adopted a policy (the “Policy”) relating to short-term or speculative transactions in the Registrant’s securities by directors, officers, and 10% holders of the Registrant’s securities. Specifically, the policy states that such individuals are prohibited from engaging in short-term or speculative transactions involving the Registrant’s securities, such as publicly traded options, short sales, puts, and calls, hedging transactions and holding the Registrant’s securities in a margin account.

ZAGG's policy against margin loans was purportedly adopted two days after Pedersen sold his shares to satisfy a margin call and one day before it announced his resignation. The 8-K report made no reference to Pedersen's sale of stock to satisfy a margin call or disclose a reason for his resignation.

Disclosure

I am a convicted felon and a former CPA. As the criminal CFO of Crazy Eddie, I helped my cousin Eddie Antar and other members of his family mastermind one of the largest securities frauds uncovered during the 1980's. I committed my crimes in cold-blood for fun and profit, and simply because I could. If it weren't for the heroic efforts of the FBI, SEC, Postal Inspector's Office, US Attorney's Office, and class action plaintiff's lawyers who investigated, prosecuted, and sued me, I would still be the criminal CFO of Crazy Eddie today.

There is a saying, "It takes one to know one." Today, I work very closely with the FBI, IRS, SEC, Justice Department, and other federal and state law enforcement agencies in training them to identify and catch white-collar criminals. Often, I refer cases to them as an independent whistleblower. I teach white-collar crime classes for various government entities, professional organizations, businesses, and colleges and universities. I do not want or seek forgiveness for my vicious crimes from my victims. My past sins are unforgivable.

2 comments:

Don't you think the board urged Pedersen to resign after finding out that he had to dump shares to meet a margin call? Maybe he got in on the FB IPO and it finally squeezed him last week.

If it is true Pedersen sold because of a margin call, it seems likely that he had no intention of resigning when he sold. It would be too easy for the SEC to build a case against him in any other situation.

Assuming the margin call reason is true, there is nothing about this that signals problems with Zagg. i.e. Its not like the CEO was dumping because the company is tanking. It was personal reasons. It seems like this will be a good thing for Zagg. There will be some difficulty until it finds a permanent CEO, but my point is that Pedersen lacked experience and Zagg needs someone to take it to the next level.